Saturday, December 13, 2008

GFRE

It's been awhile since I've introduced a new small cap stock pick and since 2008 has decimated equity valuations across the board, maybe it's time to go shopping.

The stock universe is filled with companies selling at or below net asset value, companies involved with China, companies in niche markets, companies with a great story and companies selling at PE's in the single digits with growth in the double or triple digits. What is rare though is finding a single company that has all of these characteristics.

GULF RESOURCES (GFRE @ $0.22 - OTCBB)

From Web site:

Manufacturing bromine and specialty chemical products

Gulf Resources is a leading provider of bromine, crude salt and a portfolio of various specialty chemicals throughout China. Our products are necessary components for China's flourishing oil and paper-making industries.

Gulf Resources is one of only six companies with a highly coveted Chinese license for bromine exploration, production and distribution. Bromine is a chemical element that is used in the refrigeration, medical, agrochemical, and oil field industries. While the international market is large and growing, China currently consumes all the bromine produced domestically. Gulf Resource will capitalize on the growing demand for bromine with its large proven reserves in Shouguang, China.

In addition to bromine, our company manufactures and supplies crude salt, which is found in large quantities near the bromine brine wells. Gulf Resources also develops numerous specialty chemicals for China’s papermaking and oil & gas industries.

Gulf Resources is aggressively pursuing complementary acquisitions, which coupled with sustained organic growth, will help us become a dominant worldwide player in the bromine and specialty chemical industries.
Key Statistics

Market Cap: $21.93M
P/E: 1.16
Revenue per share: $0.79
Cash per share: $0.23
Price per share: $0.22
52 Week high: $3.15
52 Week low: $0.15


Technical Analysis


Above is a Weekly chart of GFRE. It is still in a longer term downtrend channel but only a few cents away from a major breakout. A breakout on the Weekly chart would confirm an MACD cross-over Buy signal and suggest an attempt at the 50 day moving average up at 1.35, a 400% advance from current prices. I've also included a smaller term uptrend channel forming since mid-October. The top of this channel is about 0.45, a 100% gain from current prices.

Trade Triangles


On the Weekly Market Club chart GFRE is still on a Sell signal. But it would only take a pop above 0.25 this week to generate a new Buy signal. Below is the daily chart, it flipped to a Buy on Friday and any strength this week, related or unrelated to this blog, will easily challenge the Weekly chart to get on board the bullish trend.


The Story

Earlier this year, with GFRE trading at $2.80, Equities Magazine did an excellent write-up on the company. Below are some highlights and below that, a link to the article. But for the market crash, this was a good speculative buy at $2.80. At $0.22, it is a no-brainer.

GFRE is one of only six companies that hold a license to produce bromine in China. They already are China's largest bromine producer. Bromine is used in agriculture, oil and gas drilling and papermaking. China is still a net importer of bromine, meaning GFRE can sell everything they can produce to the world's fasting growing market. The world market for bromine is about $1.2B with $249M coming from China.


THIS IS A COMPANY WITH 20% THE CHINA MARKET AND A MARKET CAP OF ONLY $22M!


Kicker: In 2006 the Chinese government passed a law prohibiting the licening of any further bromine producers. Thus GFRE is one of only six companies producing bromine in China and the state has declared that there will be no further competition allowed.


Could this story get any better?



*Gulf Resources maintains property rights on over 87 square kilo-
meters (21,500 acres) of land containing over 2.27 million tons of
proven reserves.

*Bromine is a non-renewable resource. Bromine is only found in large quantities in four countries: the United States, Israel, Jordan and China.

*From the CEO of Gulf Resources:

Already the largest player in the Chinese bromine market with over a 20% market share, we plan to aggressively pursue additional complementary acquisitions, which coupled with sustained organic growth, will help us become a dominant worldwide player in the bromine industry. In addition, we expect ancillary growth from the portfolio of specialty chemical products we manufacture for the oilfield industry. Gulf Resources, Inc. will continue to be a prominent figure in the Chinese chemical industry while obtaining international recognition.

Link to the March, 2008 article in Equities Magazine.


Kind of a Disclaimer

I usually own shares of a company before touting them on my blog. In the past few months, probably due to some prescient market calls, my readership has grown significantly. Thus any stock I write up, like Gulf Resources, is likely to get a certain amount of buying upon publication of the blog, causing a pop in price.

I DON'T NEED TO MAKE MONEY LIKE THAT.


As I write this on Saturday morning, I do not own a single share of GFRE. In fact, I would prefer to wait for the break-out above $0.25 before purchasing these shares. If the stock opens Monday and trades above $0.25, I expect to begin accumulating the shares. Since I expect near term price gains to easily exceed $0.50, I'll buy at any price under 50 cents. Any price higher then 50 cents will cause me to probably wait for a pullback. This is my road map to purchasing GFRE, subject to change of course, but this is how I am intending to play it as of now.

Recommedations

Take a good long look at the GFRE charts, read the above linked article from Equities Magazine and go explore the company's web site.

Then make up your own mind.

A

30 comments:

violinbf said...

GFRE is a good call allan. The P/E ratio is rediculously low. In fact bought it about a month ago.

Anonymous said...

I was really missing posts like these. Thanks!

Anonymous said...

Allan, You da Man! SEC needs someone like you to reel in the crooks like Madoff.

Anonymous said...

Allan,
Thanks for the tip. I'm confused as to why you would buy this just before the possible huge next step down since it has followed the market so far. Is it a buy and put away? Thanks for any insights.

violinbf said...

Allan, since we are talking pennies...have you had a chance to check out ADLS (Nasdaq)? I have mentioned it before to you in a personal email.

ADLS is bringing to market a new class of antibiotics that targets resistant strains of bacteria related to Community Acquired Pneumonia. In Asia 80-90% of CAP cases are identified as resistant strains, in the US it is 70%. It was also granted orphan drug status for the treatment of Anthrax. The drug has completed successful stage III trials and it's NDA was accepted by the FDA a few days ago. Target for acceptance by the FDA is June 31 2009.

If it is accepted (and the data from the trials looks excellent) it will STAND ALONE as the only drug capable of treating these infections. The market for CAP is over 2 billion annually in the US. In October, they signed a commercialization aggreement with Wyeth for Asia, leaving the markets for Europe and the US up for grabs. This is currently trading at .33c. Although it all hinges on the NDA acceptance it does look like a good risk/return.

What do you think?

Allan said...

I'm confused as to why you would buy this just before the possible huge next step down

First, I may be wrong about market direction and second, after a new low is established, the Wave Principle calls for a multi-month, robust rally.

Allan said...

Re: ADLS

This looks good, but GFRE does diversify out of biotechs, where I am focused right now on NNVC, as close to a sure thing as I have seen in my days as an investor. Thanks for reminding me though, it certainly is worth keeping on a back burner for a future write-up (and guest blogs are always welcome, if you are so inclined).

Singlengle said...

K i'm up a little late here on the west coast (7am), and I missed 35% gain. Looks like your right about it bouncing on your blog.

:/

Wayne said...

Definitely looks like the Allan bounce :) I look at this as a speculative play, so no rush, I've put in a 0.22 limit order and will not lose sleep over missing it if it never comes back down.

On a lighter note, there's recent NNVC news:

http://www.centredaily.com/business/technology/story/1015379.html

I think that the acronym for Shivaji University, Kolhapur, India leaves a little to be desired. I mean, I just can't read lines like the following without laughing: "The International Conference was organized jointly by the Departments of Chemistry and Physics of SUK ... ".

Regards,
Wayne

Anonymous said...

lebed.biz also touted this stock so the combination of the two recommendations clearly created the bounce. The true test will be how it performs later this week after the buzz has died down. I'm betting we see $.50 before long

Anonymous said...

You called this one Allan!

Anonymous said...

What did Allan call? Kind of a self fulfilling prophecy, no? Pump a thinly traded stock and watch it get bought up by readers.

I'm not sure whether this is being recommended as a LT hold or as a swing trade.

In any event, my policy is to avoid anything China-based, so I'm watching from the sidelines. Good luck, all.

Allan said...

Re: "What did Allan call?"

You are going to judge the quality of that write-up based on two hours of trading? This is not a scalp, this is not a daytrade, that was made clear enough in my analysis. Come back in six months and give this pick a grade.

A

Anonymous said...

some people are just ungrateful...probably missed the boat today

Anonymous said...

Allan, is NNVC our "lottery ticket" as you've said before or is it "(NNVC), as close to a sure thing as I have seen in my days as an investor?"

Allan said...

It is both, yes, that is right: A sure thing lottery ticket; why do you think I have been shouting from the rooftops on this one?

A

Anonymous said...

Allan:

In light of today's massive rate cut, the new team coming into DC, The uto industry now fixed, Wall Street now fixed, the drops in both NNVC and GFRE ad the big market upmove, can we assume you have dumped NNVC and GFRE and are LONG the SPX with hundreds of calls?


Doug

Allan said...

"Doug": if you think I've sold a single share of either NNVC or GFRE you just don't get it. When you get your head out of your ass, come back and try to learn something.

Anonymous said...

Feisty! I like it! Play nice boys. We're all here to learn, trade ideas, and chase paper.

Allan, have you given GFRE a timeline (in your mind) OR are you riding it until around .50 per? I'd gather most of us reading this blog are into GFRE to some amount and the data would support shorting it to .50 per, though going long also seems to be a strong position. Are you shorting to get your cream off the top or do you plan on holding it for a while like NNVC because it has breakout potential?

From my personal research, it appears to have massive potential over the .30 some odd cents it's currently at.

-PENN STATE Eric
- just a note, I did take my head our of my ass before I wrote this :)

Allan said...

Eric: sometimes it takes an image to make a point. As for price targets, long time price target on NNVC between $20-200; Intermediate target on GFRE at about $1.50.

Anonymous said...

Allan:

I have NNVC wayyyy-long for $50 or better (I wish us all vested $200+ per). A functunal cure for HIV has gotta be worth more than .83 a pop right? Anyway...

I didn't see that you had GFRE at $1.50. How did you come up with this figure? I see the MA(50) is around there, but that couldn't be your base rationale.

Thanks for all your input and theory Allan.

-PSU Eric

Anonymous said...

Allan, Appreciate your blog. Go NNVC. Doug in Atlanta, not the dumb Doug at 1217pm

Allan said...

Doug: something is clearly up with NNVC, check out an email that was posted on iHub earlier today, not much doubt about where the path is leading.

Allan said...

Eric: GRFE is valued at 1.50 based on declining 50 day moving average along with a reasonable PE of 5, instead of 1, bringing both fundamentals and technicals together at 1.50, a 5X bagger from current levels. I expect it to overshoot that target by 2X, or 3.00 a share before long, for a 10X bagger. On top of that, if I am wrong about the bear market, maybe double that to 6.00. Basically a SCREAMING BUY at 30c.

Anonymous said...

Allan:

Why don't you just go all the way and call me a "dickhead" while you are at it.

Doug.

Anonymous said...

Allan, DH Doug is quite introspective...leave him to his own conclusions!

Anonymous said...

Allan, I appreciate your great article on GFRE I have owned it for 6 months now based on the same fundamentals and research you discovered. I think this price is a gift, PE of 1 is ridiculous and the fundamentals and future growth potential is outstanding. And i do agree with your 1.50$ rating but i would say give it 2 years or slightly less. But whoever catches this bargain will be rewarded especially when there annual report comes out showing there total yoy increases.

good luck to all,

Erik,

Anonymous said...

Wow, after minimal research, I am shocked to see this stock so cheap!

Perhaps it was a good thing for temporary gov't bailout of the Auto industry to come after all the bad news this week? Hopefully, we get a break of all the bad news for a bit and we can surge ahead to the top of your bearish channel on the DOW and get some legs under this company's share price!

Still in disbelief about how cheap the share price is. I gobbled up as much as I could at $.30. May have to average up, but will wait to see if this comes down lower next week.....unbelievable!

Gau

Anonymous said...

What tools you all are! Don't you see? Allan wanted to unload the shares he picked up at $.22! I can't believe all of you lambs thought he would be so noble as to help you guys out. LOL! More lamb to the slaughter!!

Allan said...

Allan hasn't sold a single share and true to his original post, he's averaging down here.

As for you, you pathetic piece of shit, Allan not only uses his real name, he provides his email address for anyone to contact him, while you haven't even got the balls to use a fake name.

Piss off you creep.